Financialization and the macroeconomy. Theory and empirical evidence

Gimet, Céline; Lagoarde‐Segot, Thomas; Ortiz, Luis Reyes

doi:10.1016/j.econmod.2018.12.008

Cited by 16 publications

(8 citation statements)

References 45 publications

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“…The most fundamental one is that savings are no longer considered to be a factor which will increase investment, but, rather, as a societal scourge, which decreases income and employment. Recent econometric work validates this view by showing that the development of the financial sector is actually detrimental to economic growth, wages and investment in OECD countries, especially since the 2008 crisis [39]. Policy recommendations that follow typically include the curtailing of financial markets, the taxation of multinational corporate profits, the adoption of stricter regulation of speculative activities-including secrecy jurisdictions-or the adoption of higher marginal tax rates.…”

Section: A Transaction Flows Matrixmentioning

confidence: 99%

Financing the Sustainable Development Goals

Lagoarde‐Segot

2020

Sustainability

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This paper contends that carving out pathways to finance the sustainable development goal (SDG) agenda entails to reconsider tacit assumptions regarding the functioning of financial systems. We first use a history of economic thought perspective to demonstrate the flaws of the loanable fund theory, which has come to underlie SDG finance strategies. We then introduce the alternative endogenous money theory using a consistent theoretical and accounting framework. This allows us to identify and discuss a set of financing mechanisms that would permit to bridge the SDG budget gap. These mechanisms include the issuing of sovereign green bonds, the modification of the European Central Bank's collateral framework, changes in capital adequacy ratios, a market of SDG lending certificates and the introduction of rediscounting policies. We back up the discussion with examples from economic history.Sustainability 2020, 12, 2775 2 of 22 that market prices signal the true value of financial assets, and that social welfare results from the maximization of investor wealth) need to be re-examined [12].It is within this broader context that this paper seeks to make three specific contributions to the literature on SDG finance. First, we contend that bridging the SDG finance gap requires excavating-and critically assessing-a set of tacit beliefs, which seemingly underlie the current framing of finance research and policies. Social studies of finance have indeed established that the behavior of actors (and the legal/technical system within which they operate) is shaped by underlying theoretical representations [12][13][14]. As stated in Chambost et al. (2019, p.3): "financial theories are embodied in tools, rules and artefacts acting as vectors influencing and legitimizing financial practices". We hope to fill a gap in this literature by showing that one specific conception of money and finance-the loanable fund theory (LFT)-has fundamentally influenced economic policy over the course of the past four decades.Second, we use a history of economic thought perspective-going back to the original texts-to show that the LFT does not properly account for the mechanisms of credit creation, and provides, overall, an inaccurate portrayal of the relationship between finance, savings, interest rates and investment in the real world. Several major economists (Schumpeter, Wicksell, Keynes) and central bankers around the world, have repeatedly demonstrated the logical flaws of the loanable fund theory [15]. This leads us to highlight that the LFT is a powerful-yet concealed-mental hindrance to the development of appropriate SDG finance policies.Third, we offer an in-depth discussion of the alternative endogenous money theory championed by post-Keynesian authors. We use a sound accounting and theoretical framework to carve out policy pathways for "mission-oriented" public and private investment in response to SDGs. In so doing, we contribute to recent research in ecological post-Keynesian macroeconomics [16] and to the discussion of policy proposals...

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Section: A Transaction Flows Matrixmentioning

confidence: 99%

Financing the Sustainable Development Goals

Lagoarde‐Segot

2020

Sustainability

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“…Finally, it is also argued that excessive credit may arguably engenders systemic vulnerability. Gimet et al (2019), using a sample of 29 Western countries, show that financialization of the banking sector leading to excessive leverage increases financial fragility, lowers wages, and slows down economic growth. These arguments are based on Minsky's (1992) financial instability hypothesis positing that banks become more optimistic about the future economic prospects and take on more risk over the periods of prolonged economic growth.…”

Section: The Relationship Between Access To Credit and Sdgsmentioning

confidence: 99%

Achieving the United Nations' sustainable development goals through financial inclusion: A systematic literature review of access to finance across the globe

Kara

Zhou

2021

International Review of Financial Analysis

111

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“…Specifically, in a standard VAR model, we estimate many parameters even though some of them are scarcely significant. The B‐VAR model, instead, by placing prior distributions as restrictions over these parameters (assuming that they are more likely to be close to zero than the coefficients on shorter lags) it shrinks the VAR model toward a more parsimonious model reducing parameter uncertainty while improving both forecast accuracy and sample fitting (Ca’ Zorzi et al., 2015; Gimet et al., 2019).…”

Section: Methodsmentioning

confidence: 99%

Convergence in solvency and capital centralization: A B‐VAR analysis for high‐income and euro area countries

et al. 2022

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We apply a B-VAR technique to 28 high-income countries and 11 Euro area countries in 1999-2019 to analyze the causal relationships between centralization of capital measured in terms of network control and solvency conditions represented by the difference between GDP growth and interest rate. Results show a relationship that goes in two directions. First of all, divergent solvency conditions lead to an average increase in capital centralization and its greater convergence between countries. In turn, an average increase in capital centralization and its greater convergence produces a convergence of solvency conditions between countries. These outcomes are consistent for both groups of high-income countries and Euro area countries.Finally, in the group of high-income countries, we also note that an average deterioration in solvency conditions leads to a convergence of capital centralization between countries.

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Financialization and the macroeconomy. Theory and empirical evidence

Cited by 16 publications

References 45 publications

Financing the Sustainable Development Goals

Financing the Sustainable Development Goals

Achieving the United Nations' sustainable development goals through financial inclusion: A systematic literature review of access to finance across the globe

Convergence in solvency and capital centralization: A B‐VAR analysis for high‐income and euro area countries

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